How to spot a predatory lender

How to spot a predatory lender

Predatory lenders take advantage of vulnerable individuals who are in desperate need of money, trapping them in a cycle of debt that can last a lifetime. 

If you or someone you know are in need of cash with a quick turnaround, here are a few key indicators a loan could be predatory in nature. 

Location, location, location 

These kinds of loans are a type of loan typically offered by payday or cash advance businesses.  In fact, if you’ve ever been on a mission to find a Big Mac, you might’ve been near a place that offers these kinds of loans. If you’re not looking for it, you might just drive right by and not even know it. 

According to an article from The Center for American Progress, “there are about 23,000 payday lenders — twice the number of McDonald’s restaurants in the United States — across the country. 

Payday loan and cash advance offices offering payday loans are typically located in areas with high foot traffic and low-income neighborhoods. These offices are also often found in strip malls, shopping centers and other commercial areas that are easily accessible by car or public transportation.

Payday loan and cash advance offices may also be located near military bases, where service members and their families may be targeted as potential customers.

Sky-high interest rates (aka APR)

Interest rates for predatory loans can vary widely depending on the type of loan, the lender and the borrower's creditworthiness. However, predatory loans typically have interest rates that are significantly higher than what is considered reasonable or fair.

Payday lenders usually push it to each state’s allowable limit when it comes to fees. The annual percentage rate (or APR) on a loan from a payday office can be 400% or higher – another key indicator these kinds of places don’t operate with the customer’s best interest (no pun intended) in mind. 

Lenders use sophisticated techniques to hide the true cost of their loans, making it difficult for borrowers to fully understand the terms of their agreement. This makes it even easier for predatory lenders to take advantage of vulnerable individuals, as they often do not realize they are being exploited until it is too late. 

They’re oftentimes targeted toward specific groups of people

Predatory lending practices disproportionately affect low-income communities. They often also target low-income, elderly and minority communities, offering loans with high-interest rates, hidden fees and unfavorable repayment terms. 

Predatory lenders target individuals who may not have access to traditional forms of credit, such as those with poor credit scores or low incomes or are unbanked. They often use aggressive marketing tactics to lure borrowers into taking out a loan and may pressure them into accepting unfavorable terms.

A study by the Consumer Financial Protection Bureau (CFPB) found that payday loan usage is four times higher among African American households and three times higher among Hispanic households compared to white households.

One of the most dangerous aspects of predatory lending is that it is often difficult for borrowers to identify. If you or someone you love are considering a payday loan, it’s important to read the fine print carefully and ask questions. You might also consider consulting with a trained financial advisor before making a big financial decision. 

Zirtue Team
March 16, 2023
Similar Posts

Get Zirtue

Loans without the awkwardness and all of the transparency.
Personal IOUs built for y-o-u and the people you care about.